On June 23, 2016 the UK passed a referendum –actually a vote by the citizens – to leave the European Union and sever ties with it that is commonly referred to as Brexit. The winning side which voted to leave won 51% to 49% thereby signalling an end to the years long relation of the UK with the EU. In this report the major impacts of the referendum on globalisation would be studied in detail with special reference to trade and other issues like immigration and free movement of man and material across international borders. (Dhingra et al.2016).
Globalisation and its advantages
Globalisation is the process of conducting trade and business activities like marketing, selling and production of goods and services across international geo-political boundaries so that some benefits like cheap labour of emerging economies and vast consumer base of the developing nations could be used to offset the ongoing slowdown in the major global economies of the western world. International trade is critical to UK business companies as UK has a population comprising of mainly old people which decreases the demand for modern goods and services and also bring in saturation of consumption in the domestic markets.
Pre Brexit UK
Previous to the Brexit referendum UK was tied by EU laws which restricted UK companies to sell goods and services to EU market first and also advocated free movement of man and material across its national boundaries (Coyle, 2016). On one hand there were stringent European Union regulations on the kind of trade partners the UK companies could enjoy the patronage of and also stipulated the hiring of EU nationals at very premium wages for conducting their business activities. The EU laws put unnecessary controls of the movement of goods and services across the borders of UK. This was putting a lot of strain on UK companies as they had to pay very high wages and benefits to the workers of the European Union thereby reducing its global competitiveness among other major economies of the world like USA and China (Martin et al.2007). Also migrant workers were flooding the UK market with the result that British citizens found very little employment opportunities.
The immediate fallout of Brexit
Though the process of leaving the EU is long drawn and will take a few years it is hoped that the UK companies would ultimately benefit from it as they would become free to choose their trade partners without any inhibitions. But there are some immediate repercussions like falling of the UK pound against the dollar which means that the imports would be much more expensive and also Britons travelling abroad would have to shell out more money for their purchases (Jensen and Snaith, 2016). Also the value of credit taken in dollars by UK firms for plant machinery would appreciate considerably and this would put a strain on their budget and capital investment planning both in the long term and short term future. Moreover UK was the European financial hub of many global banking behemoths like JP Morgan, Goldman Sachs, and Bank of America which are facing tremendous uncertainty over whether to move their European headquarters from London to elsewhere in mainland Europe like Paris or Germany. While global trade barriers will be removed for UK following the referendum, the uncertainty as to how exactly situation would pan out looms large in the immediate future as the process of exiting from the EU is a long drawn legal process which is complicated and challenging at the same time (Kierzenkowski et al. 2016).
Long term benefits of Brexit
On the long run Brexit vote would give more latitude to the UK companies to enter into bilateral trade pacts with lucrative emerging economies like India and China and also perhaps to shift the production base there taking the advantage of highly skilled and cheap labour resources available. Thus it would have a positive impact on globalisation as UK companies would be able to save a lot of costs which would be ultimately passed onto customers in the form of cheap prices for goods and services both for domestic as well as overseas customers. But the immediate impact of the referendum vote is negative as due to devaluation of the British currency investors would take their capital out of the country.
Effect on free movement of people
Also for globalisation to be effective there has to be free movement of people across international boundaries and hence the question of immigration comes up. The fate of the EU nationals working in the UK hangs in balance as the UK government awaits reciprocal action on Britons living elsewhere in the continent. The British Parliament has said that those EU nationals having permanent residence would be able to stay while other migrant workers might have to leave if required by the Government (Pisani-Ferry et al .2016). This could have a negative impact on globalisation and global trade relation may suffer between the UK and other EU countries thereby diminishing the business opportunities of UK companies to a large extent. The current British Prime Minister going along with popular aspirations of the UK citizens has vowed cut down on net migration-difference between people entering and leaving the UK-to sustainable levels. This could have a negative impact on globalisation as the basic requirement of global trade is the free movement of people across international boundaries to facilitate the conducting of business activities.
Also UK was a major educational hub for students from all over the globe and the thriving education business added three million pounds to the UK economy annually. All this is going to be curtailed to a great extent following the referendum and the decision by the Prime Minister.
Thus from this essay it could be seen that there are some positive as well as negative impacts on globalisation due to the Brexit referendum vote passed last year (Coyle, 2016). Exactly how situations would pan out remains to be seen over the next coming years and business organisations of the UK and other parts of the world can do nothing but keep their fingers crossed and hope for a favourable outcome. It’s too early to predict the exact repercussions of Brexit on globalisation as the exit itself is a long drawn and complicated legal procedure.
Dhingra, S., Ottaviano, G., Sampson, T. and Van Reenen, J., 2016. The impact of Brexit on foreign investment in the UK. BREXIT 2016, p.24.
Dhingra, S., Ottaviano, G.I., Sampson, T. and Reenen, J.V., 2016. The consequences of Brexit for UK trade and living standards.
Coyle, D., 2016. Brexit and Globalisation. Brexit Beckons: Thinking ahead by leading economists, p.23.
Dhingra, S. and Sampson, T., 2016. 6 UK-EU relations after Brexit: What is best for the UK economy?. Brexit Beckons: Thinking ahead by leading economists.
Martin, P., Mayer, T., Thoenig, M., French, O., Colantone, S., Stehrer, D.V., Bentolila, J., Deaton, C. and Henriksen, M., 2007. Does globalisation pacify international relations. VoxEU. org, 4.
Pisani-Ferry, J., Röttgen, N., Sapir, A., Tucker, P. and Wolff, G.B., 2016. Europe after Brexit: A proposal for a continental partnership. Bruegel External Publication, Brussels.
Jensen, M.D. and Snaith, H., 2016. When politics prevails: the political economy of a Brexit. Journal of European Public Policy, 23(9), pp.1302-1310.
Kierzenkowski, R., Pain, N., Rusticelli, E. and Zwart, S., 2016. The economic consequences of Brexit: a taxing decision. OECD Economic Policy Papers, (16), p.1.